IFRS and GAAP Convergence – A Case for Technical Isolationism

| Audit and Accounting

By Mike Alerding     The freight train running down the tracks at breakneck speed called “IFRS/GAAP Convergence,” is headed for a tragic and regrettable collision with reality and common sense. Creditors, investors and stockholders are all giving a hearty thumbs-up to convergence under the mistaken premise that the grass is actually greener on the world stage. These so-called “users” in the U.S. are hiding behind the same curtain that hid the Wizard of Oz and, through their silence, are condoning a new era in financial reporting without having a clue about the enormous effects of this change.

The basic premise for convergence has been more about world politics than financial reporting and common sense. As the world economic crisis has continued for the past 4-5 years, foreign regulators, standard setters and economists have taken the opportunity to strike while they perceive the U.S. is economically injured and unable to defend itself. The perception of many Americans is that Asian, European and even third-world countries have more to say about our own economic woes than our own economy. This has led to a quick and direct strike by foreign governments and standard setters to promote IFRS while U. S. standard setters, economists and even the SEC have surrendered to global political pressure. What those users in the U.S. are quickly finding, however, is that the greener grass was really a layer of green moss on top of a very deep and dangerous swamp called IFRS.

What CPA’s in the U.S. have known for years is that U.S. GAAP, with all of its faults and excesses, is still pretty good. The exposure process used by the FASB and its predecessor, the AICPA, for introducing new guidelines and standards assures that both users and the preparers will have direct and meaningful input into the final product. The IRFS freight train, on the other hand, is running amuck primarily because of apathy and fear on the part of users and because neither users nor preparers are having input in the process. Eggheads are talking to Eggheads…………..that is never a good situation.

It is time for a serious and concentrated movement toward technical isolationism in the U.S. as it relates to accounting and financial reporting matters. It seems foolish to make massive cultural changes to a system that is tailored specifically to the needs, sophistication level and diversity of U.S. companies, all in the name of submitting to “global economics.” In all of my continuing education classes in the past few months (both as an instructor and participant) and in my dialog with my peer CPA’s, not once have I found anyone who believes that a change to IFRS makes sense or comes close to passing the cost/benefit test for U.S. companies. Simply put, it is a change that promises U.S. companies little or nothing, but will cost users and preparers alike a fortune to adopt.

The idea for economic isolationism in the U.S goes all the way back to the Revolutionary War days when Thomas Paine, in his landmark work, Common Sense, Thomas Jefferson, in his inaugural address, and even George Washington in his farewell address, all presented very compelling arguments for shunning alliances with foreign powers just for the sake of being good neighbors. The same arguments can be made today as we move toward an illogical, misguided and unnecessary change just so we can say we are good neighbors on the world stage. Clearly the U.S. economy and U.S. businesses are the most sophisticated and complex in the world, so why would we even consider lowering our standards in adopting an illogical, undesirable and, in many cases, completely inappropriate level of financial reporting?

If anyone wants to see proof for isolationism, just take a good look at the draft model financial statements being floated by those who are involved in converging IFRS and U.S. GAAP that I have attached to this blog. I challenge anyone to convince me or anyone else that this format represents an “improvement” in financial reporting.

I think it is time to put the brakes on this runaway train and close the doors to the rest of the world when it comes to financial reporting. The U.S. needs to reclaim its world leadership in economics and financial reporting and take care of its own needs first.

Mike Alerding is a co-founder and Senior Director at Alerding CPA Group, an Indianapolis-based public accounting firm. Visit our website: www.alerdingcpagroup.com.

This post was written by:

Michael Alerding, CPA
Senior Director

Mike has over 40 years of experience in public accounting. He is a prior columnist for The Indianapolis Business Journal and serves on multiple boards throughout Indianapolis. He currently focuses his time on litigation support, business valuations, succession planning consulting and audit and accounting engagements.
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